Agency/Partnership Flashcards
(36 cards)
When is an agent not liable to a third party?
(1) fully discloses the principal he is acting on behalf of (he provides the name of the principal to the third-party); AND’
(2) acts within the scope of his authority.
When is an agent liable to a third party on a contract?
(1) when the principal is undisclosed (when the
third-party does not know the agent is acting on behalf of a principal).
Moreover, an undisclosed principal’s ratification
DOES NOT eliminate the agent’s liability to the third-party on the contract.
(2) when the principal is partially disclosed or unidentified (when the third-party knows the
agent is acting on behalf of a principal but does not know the identity of the principal).
Is an agent still liable to a contract if the principal ratified the K?
YES
If undisclosed
Vicarious Liability of Principal for an Agent’s Torts MEE analysis step s
Step 1: Is the person who committed the tort an employee?
o If the question states that the person is an employee,
you can skip this step.
o If it’s unclear if the person is an employee or
independent contractor, apply the “Employee
vs. Independent Contractor” rule.
- Step 2: If the person is an employee, determine if the tortious
act was committed within the scope of employment.
o See “Vicarious Liability of Employer: Doctrine of
Respondeat Superior” rule.
If the act was within scope of employment,
then employer is liable.
If the act was not within scope of
employment, then the employer is generally
not liable (but see exceptions in Step 3
below). - Step 3: Do any exceptions apply to hold an employer
liable when the tort was not committed with the scope of
employment?
o See the “Vicarious Liability of Employer: Liability
Where Respondeat Superior Doctrine Inapplicable”
rule. - Step 4: Is the principal liable for acts of the Independent
Contractor?
See “Vicarious Liability for Acts of Independent
Contractors” rule.
Generally, a principal is not liable.
But, check if any exceptions apply.
Employer liability of employee or IC
An employer is vicariously liable for an employee’s
negligent acts if the employee was acting within the scope of employment.
However, a principal/employer is generally NOT vicariously liable for the torts of an independent contractor.
Employee defention:
An employee is an agent whom the employer controls
(or has the right to control) the manner and means of the agent’s performance of work.
Independent contractor defintion:
a person who contracts with another to do something for him, but who is not controlled nor subject to the other’s right to control with respect to his performance. The contractor may or may not be an agent.
The factors used to determine whether an agent is an employee are:
(1) the extent of control the principal may
exercise over the details of the work;
(2) if the agent is engaged in a distinct occupation or business; (3) the type of work; (4) how the agent is paid (hourly or per project); (5) who supplied the equipment or tools; (6) the degree of supervision; (7) the degree of skill required; (8) whether the
job was part of the principal’s regular business; (9) the length of time the agent is engaged by the principal; (10) whether the principal and the agent believe that they are creating an employment relationship; and (11) whether the person was
hired for a business purpose.
Vicarious Liability of Employer: Doctrine of Respondeat Superior
Under the doctrine of respondeat superior, an employer is vicariously liable for an employee’s negligent acts if the employee was acting within the scope of employment.
An employee acts within the scope of employment
when: (a) performing work assigned by the employer; OR (b) engaging in a course of conduct subject to the employer’s control.
An employee’s act is NOT within the scope of employment when:
(1) it occurs within an independent course of
conduct; AND (2) it is not intended by the employee to serve any purpose of the employer.
An employee’s intentional torts are generally NOT
within the scope of employment UNLESS the act:
(a) was specifically authorized by the employer; (b) was driven by a desire to serve the employer; OR (c) was the result of naturally occurring friction from the type of employment.
Fiduciary Duties Owed by the Agent to the Principal
An agent owes the principal the following fiduciary duties concerning matters within the scope of agency: (1) Duty of Care – to use reasonable care when performing the agent’s duties;
(2) Duty of Loyalty – to act solely and loyally for the principal’s benefit; AND
(3) Duty of Obedience – to obey all reasonable directions given by the principal and to act in accordance with the express or implied terms of the relationship.
Creation of a General Partnership
A General Partnership is created when (1) two or more persons, (2) as co-owners, (3) carry on a business for profit. No written agreement or formalities are required. A person’s intent to form a partnership or be partners is NOT required.
Part ownership or common ownership of property alone is NOT enough to create a partnership. Likewise, a joint venture DOES NOT automatically create a partnership.
A person who receives a share of the profits of the partnership business is presumed to be a partner of the business UNLESS the profits were received in payment:
(a) of a debt; (b) for wages as an employee or independent contractor; (c) of rent; (d) of an annuity or other retirement benefit; (e) of interest/loan charges; OR (f) for the sale of
the goodwill of a business.
Formation of a Limited Partnership (LP)
A Limited Partnership is a partnership composed of general and limited partners, and MUST have at least one general partner.
It is formed upon the filing of a
Certificate of Limited Partnership with the Secretary of State that includes:
(1) the name of the partnership; (2) the address of the partnership; (3) name and address of each partner; (4) whether the partnership is a Limited Liability Partnership; AND (5) it must be signed by a general partner.
If the Certificate of Limited Partnership fails to meet the above requirements, then a General Partnership is created.
Formation of a Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is one in which all partners have limited personal liability. Any partnership may become an LLP upon: (1) approval by the same vote that is necessary to amend the partnership agreement; AND (2) by filing a Statement of Qualification with the Secretary of
State. Unless otherwise agreed, a unanimous vote is required to amend a partnership agreement.
Authority to Bind the Partnership
Each partner is an agent of the partnership, and generally has authority to bind the partnership for the purpose of its business (including entering into contracts).
A partner has express actual authority to bind the
partnership upon receiving said authority from the
partners. Acts within the ordinary course of the partnership business need only be approved by a majority of the partners. Acts outside the ordinary course of business must be approved unanimously.
If the partnership agreement is silent on the scope of the partner’s authority:
a partner has authority to bind the partnership to usual and customary matters, UNLESS the partner knows that: (a) other partnersmight disagree; OR (b) for some other reason consultation with fellow partners is appropriate. Hiring an employee is
normally within the ordinary course of partnership business, unless the partnership agreement states otherwise.
A partner has implied actual authority (also known as incidental authority) to
take actions that are reasonably incidental or necessary to achieve the partner’s authorized duties.
A partner has apparent authority to bind the partnership for:
all acts apparently conducted within the ordinary course of the partnership business OR the kind carried on by the partnership.
However, a partner’s act will NOT bind the
partnership if: (1) the partner lacked authority; AND (2) the third-party knew (actual knowledge) or had notice that the partner lacked authority.
An act or transaction is within the ordinary course of business if it is:
normal and necessary for managing the business –
a person would reasonably conclude the act is directly and necessarily embraced within the partnership business.
Personal Liability of General Partners & Judgment Enforcement
General Partners are personally liable
for ALL obligations of the partnership UNLESS otherwise agreed by the claimant or provided by law.
Under the Uniform Partnership Act (1997), general
partners are jointly and severally liable for partnership obligations, which means that a claimant can collect the full amount of the debt from any one of the partners.
Under the Uniform Partnership Act (1914), general
partners are only jointly liable (not jointly and
severally liable), which means that a plaintiff must
join all partners in an action.
Incoming Partners:
Incoming partners admitted into an existing partnership are NOT liable for obligations incurred prior to their admission, even if the incoming partner has notice of a claim.
Judgment Enforcement Against a Partner’s Personal Assets:
Generally, a judgment creditor CANNOT levy
execution of the judgment against a partner’s personal assets for a partnership debt UNLESS: (1) a judgment has been rendered against the partner; AND (2) the partnership assets have been exhausted or are insufficient.
Under the Uniform Partnership Act, a judgment
against the partnership is NOT by itself a judgment
against the individual partners. However, a judgment may be sought against the partnership and the individual partners in the same action.
